We need to protect the middle classes, says Varadkar

Minister is first senior FG figure to say reduction of less than €3.1bn acceptable

Minister for Transport and Tourism Leo Varadkar says precise adjustment figure is less important than avoiding new taxes. Photograph: David Sleator

A senior Fine Gael Minister has said he is not overly concerned that budget reductions may be less than €3.1 billion, as long as it protects middle class taxpayers and provides for new capital spending.

Minister for Transport and Tourism Leo Varadkar has said that for him the important thing in the October budget is the nature and effect of the provisions it contains rather than the actual adjustment figure.

“I am less interested in whether it is €2.7 billion or €3.1 billon than how [the Government] arrives at either figure.

“We need to protect the middle class from too many new taxes and find some room to boost capital spending to create new jobs,” he told The Irish Times yesterday.

The bailout programme agreed with the EU and IMF specifies a budget, the provisions of which will reduce the gap between revenue and spending next year to 5.1 per cent of domestic product. The projected figure in monetary terms was €3.1 billion but in recent months it has been widely accepted that the figure required to reach the target will be some distance short of that, as low as €2.5 billion. The IMF has said it would prefer if the adjustment remained at €3.1 billion.

Labour MinistersTánaiste Eamon Gilmore and Labour Ministers have already stated publicly they will seek an adjustment of less than that sum. Minister for Education Ruairí Quinn became the latest to do so yesterday when he said he believed it should be less.

While Taoiseach Enda Kenny indicated in late July the adjustment may be less, Mr Varadkar is the first senior Fine Gael Minister to state publicly that a lesser figure would be acceptable within his party.

Mr Varadkar said yesterday it was too early to judge what the actual adjustments would be. “There are a lot of variables that we won’t know for a few weeks: the growth [figures] for quarter two [of this year]; the growth estimate for 2014; tax returns over the summer; and underspends and overspends in the Department of Health and the Department of Social Protection. ”

The Department of Finance is working off incomplete data sets for the budget, which has been brought forward from the first week in December to October 15th, to comply with new rules for euro zone countries.

Crucial dataThe data crucial for its budgetary assumptions will be the Central Statistic Office figures on second quarter growth (which will give a basis for calculating domestic product) due out at the end of September and the tax figures for the first nine months of the year, which will be published in early October.

There is confidence in Government that with an increase in the number of people employed and with higher tax revenues, a smaller adjustment is possible. The debate within Cabinet will be partly about the actual figure but also about the desirability of going for a lower percentage adjustment. A Government source said yesterday that if it was, say, 4.9 per cent, it would make it easier to reach the ultimate objective of reducing the deficit to 3 per cent by the end of 2015.

One boon for Minister for Finance Michael Noonan this year is that only about half the €1 billion of additional tax revenue in 2014 will come from new taxes. The introduction of the property tax this year as well as pensions adjustments in last year’s budget have resulted in a situation where he will have a “carry-over” of some €500 million for the budget, which takes in the effect of a measure over a full year.